Peter K. Grom

Peter K. Grom followed up on margin phasing, asking if the strong Q1 operating margin expansion suggests potential upside to the full-year guidance, given previous comments about greater expansion in the back half.

Answer

Executive Vice President and CFO Akhil Shrivastava stated that while Q1 showed good progress, it's not enough information to change the full-year phasing, which still anticipates sequential build. He emphasized the broad-based nature of the PRGP, focusing on COGS, OpEx, and procurement to drive long-term margin expansion towards solid double digits. President and CEO Stéphane de La Faverie reiterated confidence in delivering the guidance and continuous sequential improvement, driven by reaccelerating retail, market share gains, unit growth, and a strong innovation pipeline.

Peter K. Grom revisited the margin phasing question, noting that management previously indicated greater operating margin expansion in the back half and sequential build through the year. He asked if this view on phasing had changed, given the strong Q1 performance, which might suggest upside to full-year guidance.

Answer

EVP and CFO Akhil Shrivastava confirmed that the 7% Q1 operating margin is still lower than the 9.4%-9.9% full-year range, implying sequential build. He stated that it's too early to change the phasing guidance based on one quarter, but the ambition is to deliver and potentially exceed the plan. He emphasized the company's newly built 'cost muscle' through PRGP, focusing on COGS, OpEx, procurement, and restructuring, which provides significant long-term SG&A opportunity. President and CEO Stéphane de La Faverie reiterated confidence in delivering guidance, highlighting the fast reacceleration of retail in China, market share maintenance in the U.S., unit growth, and a strong pipeline of innovation for Q2 and Q3, all contributing to continuous acceleration and operating margin rebuilding.

Peter K. Grom inquired about the impact of OWYN's product quality issues on Q4 performance, the brand's recovery path, recent performance trends, and how these factors influence the full-year sales guidance for OWYN.

Answer

President and CEO Geoff Tanner explained that OWYN's Q4 slowdown was exacerbated by a pea protein sourcing issue from Q2 production, impacting taste and texture on certain lots. He confirmed the issue is largely rectified with a new formulation shipping since August, and aggressive trade and marketing investments are underway to re-accelerate trial. Tanner expressed continued confidence in OWYN's long-term trajectory, citing its leadership in clean label, distribution upside, low awareness, and high-growth powder business.

Peter K. Grom asked about the impact of OWYN's product quality issues on Q4 performance, the brand's path forward, recent performance trends, and how these factors influence the full-year sales guidance for Simply Good Foods.

Answer

President and CEO Geoff Tanner explained that while Q4 slowing was expected due to lapping distribution wins, the product quality issue related to pea protein sourcing prior to acquisition impacted taste and texture on certain lots, affecting consumption and reviews. He noted the issue is largely resolved with a new formulation shipping since August, increased trade, and marketing investments. Tanner expressed continued confidence in OWYN's trajectory, citing its leadership in clean label, distribution upside, low awareness headroom, and strong growth in powders, with significant marketing and innovation planned.